Excitement over a Chinese stimulus “bazooka” is starting to wane, say Wataru Suzuki and Stella Yifan Xie for Nikkei Asia. Beijing has unveiled a series of stimulus measures designed to reinvigorate the world’s second biggest economy, sending the local CSI 300 index soaring by more than a fifth. Markets have been pinning their hopes on a rumoured ¥1 trillion-¥3 trillion (£107 billion-£322 billion) in “fresh fiscal spending”, but details are lacking.
Finance minister Lan Fo’an merely said there is “relatively large room” for new state borrowing. Fo'an plans to use it to help cash-strapped local governments and to stabilise the property market, says Keith Bradsher in The New York Times. Investors want numbers, but for that, they must wait until later this month, when the standing committee of the national legislature is expected to “sign off” on new debt issuance.
How are investors reacting to the Bazooka stimulus?
Markets are hoping for a bazooka stimulus to rival China’s massive response to the 2008 global financial crisis, says Mohamed El-Erian on Bloomberg. They are likely to be “disappointed”. Not for the first time, foreign money managers are “grossly” oversimplifying the Chinese economy. Officials have always shown a preference for “limited stimulus”. They are well aware that a huge fiscal bazooka would only exacerbate the “serious imbalances” and debt that caused this slowdown in the first place. China wants an “insurance policy” against a serious economic crunch, not a bazooka that will fire up another unsustainable boom.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The stock market rally is part of a strategy designed to raise economic confidence, says Ambrose Evans-Pritchard in The Telegraph. These state-sanctioned “boomlets” usually run for two months before regulators step in to cool things down. That said, with global interest rates falling, the current rally may have a little more “staying power”. Stocks “could have a pop for a while, but the risk is what we saw coming out of Covid”, says Bill Bishop of the China Sinocism newsletter. “There was quite a rally for a couple of months but then people realised that the economic policies hadn’t changed.” On 11 times forward earnings, Chinese shares are temptingly undervalued, says Chan Ka Sing for Breakingviews.
The equivalent rating for Indian shares is 20. But the Shanghai market trades heavily on sentiment – much of this rally “has been fuelled by fast money betting” on the latest government announcements. “Chinese stocks have become more of a trade than a long-term investment.” The market’s long-term record is disappointing, agrees Buttonwood in The Economist. Over the past 15 years, Chinese GDP has “quadrupled” in nominal terms, yet the CSI 300 is up “less than a quarter” over the same period. Should long-term “buy and hold” investors pile in? “The answer is clearly still ‘no’.”
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Are venture-capital trusts worth investing in?Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
-
'It’s time to close the British steel industry'Opinion The price tag on British steel is just too high. It's time for Labour to make a grown-up decision and close down the industry, says Matthew Lynn
-
Last orders: can UK pubs be saved?Pubs in Britain are closing at the rate of one a day, continuing and accelerating a long-term downward trend. Why? And can anything be done to save them?
-
David Ellison: America's new media mogulDavid Ellison is building a mighty new force in old and new media. Critics worry that he will prove to be a Trumpian patsy. Is that fair?
-
How Next defied the odds and positioned itself as a British high-street stapleNext rose from a near-death experience and now thrives as a high-street staple. What's driving its success – and should you invest in the retailer?
-
Why investors should avoid market monomaniaOpinion Today’s overwhelming focus on US markets leaves investors guessing about opportunities and risks elsewhere
-
Can Rachel Reeves save the City?Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
